Canada’s condo boom continues to take many by surprise with groundbreaking in Toronto still going strong, even as prices of detached homes in Canada’s largest city slump. However, recent rate hikes and rent controls are expected to bring down the condo prices by 2018. Industry insiders had predicted that the brisk construction of high rise homes in Toronto would bring about a glut and eventual crash. Amidst such a scenario, the condo market has turned out to be the stalwart survivor as a long-awaited broad housing market correction grips the city.
Developers and economists unanimously agree that condo prices, up 21% in a year according to Toronto Real Estate Board, cannot keep rising at such a pace, partly because it was their relative affordability compared to single-family homes that fueled the boom in the first place. According to experts, a significant appreciation has been noted over the last 12 months and it is unlikely to continue growing at such as aggressive rate. They also believe that despite the cooling of prices, the scarcity of land on which to build detached houses will continue encouraging the boom in the condo building.
The heath of the condo market is critical for Toronto. Multiple-unit buildings account for about 40% of housing starts in Canada as a whole and around 53% in Toronto. By 2018, more than 62% of Toronto groundbreaking will be in multiples, as opined by experts in the industry. Those who buy condos for an assured monthly income may find the market less attractive with two Bank of Canada rate hikes in the last three months boosting borrowing costs, and provincial rent controls divulged in April that has limited income potential.
When it comes to the impact of risk of rent control, developers are divided. Experts believe that new condos will become more attractive than resale because rent controls do not limit initial rents, only subsequent increases. Interestingly enough, the city’s low vacancy rate has made Toronto’s condos a lucrative long-term bet. This, in turn, has fueled bidding wars amongst renters and drive monthly condo rents to an average of $2074 in the second quarter, up 7.2% from $1935 a year ago, according to market research firm Urbanation.
Affordability is another factor to be taken into account. Since detached homes have doubled their price to about $1 million, twice the price of the average condo, during the recent boom. Experts also are confident of the fact that condos will attract buyers even as detached homes sit unsold and prices fall.
